Lenovo 2010 Annual Report Download - page 87

2009/10 Annual Report Lenovo Group Limited
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2009/10 Annual Report Lenovo Group Limited
85
2 Significant accounting policies (continued)
(i) Impairment of financial assets (continued)
(a) Assets carried at amortized cost (continued)
The amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of
the loss is recognized in the income statement. If a loan or held-to-maturity investment has a variable interest
rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under
the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair
value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as improvement in the debtor’s
credit rating), impairment loss is reversed through the income statement.
(b) Assets classified as available-for-sale
For impairment review and measurement of debt securities classified as available-for-sale, the Group use the
criteria refer to (a) above. If, in a subsequent period, the fair value of a debt instrument classified as available-
for-sale increases and the increase can be objectively related to an event occurring after the impairment loss
was recognized in income statement, the impairment loss is reversed through the income statement.
In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair
value of the security below its cost is evidence that the assets are impaired. If any such evidence exists, the
cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognized in the income statement, is removed from equity
through other comprehensive income and recognized in the income statement. Impairment losses recognized
in the income statement on equity instruments are not reversed through the income statement.
(j) Derivative financial instruments and hedging activities
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group
designates certain derivatives as either: (1) hedges of the fair value of recognized assets or liabilities or a firm
commitment (fair value hedge) or (2) hedges of highly probable forecast transactions (cash flow hedges).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged
items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The
Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged
items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged
item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is
less than 12 months. Trading derivatives are classified as a current asset or liability.
(i) Fair value hedge
Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded
in the income statement, together with any changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk.